By Ray Birch
SCOTTSDALE, Ariz.—Are credit unions hurting themselves by not conducting sufficient benchmarking? They may very well be, says Cornerstone Advisors, which believes the hesitancy can result from the misplaced fear the exercise is simply an effort to trim jobs instead of the driver of growth it can be.
And that’s too bad, the company said, sharing with CUToday.info some benchmarking approaches that have led to some eye-opening efficiency and growth numbers among a number of CUs.
Benchmarking the credit union is not all about headcount, according to Cornerstone, which emphasizes if managed correctly benchmarking can have a major impact on the bottom line.
In fact, a recent Cornerstone study shows that over a two-year period credit unions and banks with a disciplined focus on benchmarking and performance management improved their efficiency three times faster, while also growing assets 3.6% higher than those that did not have that discipline.
Not Just About Cutting
“Benchmarking doesn't have to just be about cutting, because you can't cut your way to growth,” said Mike Rempel, senior director at Cornerstone. “For us, it's about where do we invest that next dollar and where is that going to be the most optimal place to invest? Whether that's expansion of a retail area or investment in technology, benchmarking allows us to understand where the opportunities are and make that decision that's going to be most impactful for everybody.”
Mike Rempel
Rempel said that when thinking about bringing benchmarking into the organization, a credit union must do so in a way that turns incentives into carrots and not sticks.
“Benchmarking doesn't need to be this big scary thing,” he said. “It is not a headcount reduction exercise. If you're in the marketing area, you may be rightly staffed for the organization but have some revenue targets that could help support you. If you're in IT, it can be about contract savings.”
Seeking a Holistic View
Eric Weikart, partner at Cornerstone, explained benchmarking an organization should be comprehensive, and not just limited to certain areas.
‘’And, it's all very specific information—like how many applications an underwriter or loan processor should be looking at a month. It's not easily available as public information. And one of the things that should be an outcome is a roadmap of what they should be focusing on,” Weikart said.
As a result, Weikart said the credit union is able to focus on the larger picture and what it will take to move the needle in those areas.
“Benchmarks show the credit union where the big opportunities around people, process and technology are,” Weikart said. “Is it in mortgage lending? Is it in deposit operations? Is it in IT or HR? Maybe the contact center or the branch? What we try to do is give them a holistic view of their credit union’s performance and strategically set targets on where they're going and what they need to do.”
Eric Weikart, Cornerstone
Three to Four Areas of Focus
Benchmarking efforts typically lead an organization to focus on three to four areas, Weikart said.
“Now, we can really go after opportunities, versus looking at the whole credit union and trying to figure out 100 initiatives,” Weikart said.
The areas benchmarking uncovers that need the most improvement varies by organization. But Weikart said there are some common problem points.
“I would say one big area, especially for banks, is commercial lending. For credit unions, it is often mortgages, retail lending or branch productivity,” he said.
Weikart said that with refi’s falling off and purchase volume now being the focus, staffing becomes a concern. He said a credit union cannot make a judgment on a loan originator’s production based on older data, since the mortgage market has shifted away from refis. He said data from a year or two ago reveal originators closing more loans than they are today.
Changing Market, Changing Data
“What's happening is the data is changing as the market conditions are changing,” Weikart said. “Are credit unions pivoting quickly enough, based upon those changes in data? It's really important for us to pivot—and maybe it's the products we're offering. Maybe we do more construction lending or different types of mortgages. Or, we move to more of a home equity focus. All of a sudden the folks that were processing mortgages are now processing home equities. They're not just sitting there idle.”
Wherever the opportunities lie, Rempel said using available staff appropriately to drive production is a matter that needs addressing.
“Oftentimes, we find excess capacity in lending areas and in sales areas, whether that's technology driven or process driven, or even just internal accountability and a culture of sales,” Rempel said. “On the front end it’s having the capacity, and then on the back end it’s your processes.”
‘Only Goes So Far’
Rempel said the publicly available CU performance data, such as what is available in Call Reports, is good for a CU to pay attention to, including when compared to peer groups.
“Yet, that information only goes so far,” said Rempel. “Knowing what you actually need to do tactically to actually move the needle on the performance number is a whole different thing. That's something that our clients really struggle with. We're often finding opportunities across multiple lines of business and it's very possible that the highest impact item is going to impact multiple business owners that have competing agendas and differing levels of expertise. It's a big organizational challenge that can involve people stepping on each other’s toes because an opportunity can cover so many different areas.”
An Undeserved Bad Name
Weikart reiterated that benchmarking can get a bad name because credit unions initially think it means headcount reduction.
“Benchmarking really comes down to a balanced approach to driving performance,” said Weikart. “So, we have metrics across the board—whether it's staffing and efficiency, member service, giveback, convenience, revenue growth. It also could be non-interest expense. We have a lot of contracts that we identify in our performance program that need to get renegotiated. We have saved millions of dollars saved for our clients doing nothing other than negotiating their contracts.”